Parsing Invalidating Statutes (Part I)
November 27, 2023
In previous posts, I have written about how the precise language used in a choice-of-law or forum selection clause can prove consequential in litigation. In this post, I argue that the precise language used in state statutes purporting to invalidate these clauses can likewise have an outsized effect.
There are hundreds of state statutes that direct state courts not to give effect to choice-of-law and forum selection clauses. A list of statutes invalidating choice-of-law clauses can be found here. A list of statutes invalidating forum selection clauses can be found here. Compiling these lists was not easy. A statute invalidating choice-of-law clauses in insurance contracts will typically be found in the state insurance code. A statute invalidating choice-of-law clauses in franchise agreements, by comparison, will typically be found in the section of the code dealing with the rights of franchisees. Because these statutes are not collected in a single place, it is necessary to comb through state codes in their entirety looking for provisions that purport to invalidate choice-of-law or forum selection clauses.
Since invalidating statutes are typically written at different times with respect to different pieces of legislation, it should come as little surprise that they are not all drafted in the same way. The statutory language invalidating a forum selection clause in a consumer lease, for example, is different than the statutory language invalidating a forum selection clause in an employment contract. These small differences in language can, in turn, have a major impact on litigation outcomes.
In 2007, the Texas state legislature enacted a statute purporting to invalidate certain forum selection clauses in construction contracts concerning real property in Texas. That statute provides:
If a construction contract or an agreement collateral to or affecting the construction contract contains a provision making the contract or agreement or any conflict arising under the contract or agreement subject to . . . litigation in the courts of another state . . . that provision is voidable by a party obligated by the contract or agreement to perform the work that is the subject of the construction contract.
The exact meaning of this statute was litigated in In re MVP Terminalling, LLC, a Texas case decided in 2022. The litigants in MVP entered into a contract to construct new docks at a marine terminal near Houston. The contract contained an exclusive forum selection clause choosing the courts of Oklahoma. After a dispute arose, one party sued the other in Texas state court. The defendant invoked the Oklahoma forum selection clause and sought to have the case dismissed. The plaintiff argued that this clause was not enforceable because the Texas legislature had passed the statute referenced above.
In resolving this issue, the Texas court first observed that the clause was merely “voidable” under the language of the statute. It then noted that the forum selection clause contained language whereby each party “waived any objection . . . to venue.” Finally, the court held that since the clause was merely voidable (rather than void), and the plaintiff had waived its right to object to venue, the statute did not operate to invalidate the Oklahoma forum selection clause.
In support of this holding, the court specifically noted that other invalidating statutes relating to construction contracts used different language. As it explained:
[Plaintiff] cites to statutes from other states that make forum-selection and choice-of-law clauses in construction contracts void and unenforceable in support of its position that the Texas Legislature intended for section 272.001 to be non-waivable. RLB’s reliance on these other statutes is misplaced because those statutes expressly deem forum-selection and choice-of-law clauses in construction contracts as “against public policy” and/or “void” and/or “unenforceable” rather than merely “voidable.”
Viewed through a purposivist lens, it seems doubtful that the Texas legislature wanted to make it so easy to evade its invalidating statute. If that law can be rendered a nullity merely by redrafting the forum selection clause to add some waiver language, then it seems unlikely to achieve its intended goal of ensuring that construction disputes relating to real property in Texas are heard in Texas. Viewed through a textualist lens, however, there is no denying that the statute used the word “voidable” rather than “void” and that differences in language are supposed to mean something.
While this particular case involved a forum selection clause selecting the courts in another U.S. state, there is nothing in the decision suggesting that the court would treat a forum selection clause selecting the courts in a foreign country any differently so long as the clause appeared in a contract covered by the statute. If the statutory text states that the clause is “void” or “unenforceable” or “against public policy,” then the foreign forum selection clause will not be enforced. If the text states that the clause is “voidable,” by comparison, then that clause may well be given effect. These small differences in language may ultimately determine whether a case is heard in Dallas or Dubai.